Economists' biggest worry: Federal budget deficit

By Chris Isidore, senior writerFebruary 28, 2011: 5:24 AM ET

NEW YORK (CNNMoney) -- Government deficits are the biggest long-term worry of top U.S. economists, according to a survey released Monday.

The survey of 47 top economists by the National Association of Business Economics predicted that the Federal deficit will jump to $1.4 trillion in the fiscal year ending in September. In the November survey, the economists had forecast a $1.1 trillion deficit.

The economists' forecast is a bit more optimistic than the latest projection of a $1.5 trillion gap from the nonpartisan Congressional Budget Office.

The previous survey was taken before Congress agreed to extend Bush-era tax cuts for all income brackets and have a one-year holiday on a portion of the payroll tax. The payroll tax holiday, which hadn't been widely expected, by itself added about $112 billion to the federal deficit.

Asked to rank the seriousness of various economic problems, with one meaning no concern and five equaling extreme concern, the federal deficit was the biggest worry, with an average score of 4.1.

State and local government budget deficits and debt was the second biggest worry with a score of 3.4.

The survey results come as fierce debates are raging in Congress and in statehouses across the nation about how to address gaping budget gaps. There is a chance the federal government could even shut down without a budget deal, and public employee unions across the country are protesting proposed cuts at the state and local level.

Some leading economists, including Federal Reserve Chairman Ben Bernanke, have argued that while deficits must be addressed, the economic recovery is still too weak to implement deep spending cuts or tax increases.

Despite the budget worries, the economists are more optimistic about growth than they were three months ago. They expect economic growth of 3.3% in 2011, up significantly from the 2.6% growth rate forecast in November.

And economists are less concerned about a double-dip recession. When asked about the likelihood of three months ago, they suggested there was about an 8% chance of the economy falling into another recession. Today they see the chance of a double-dip in the 1% range.

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